So one of your current or prior customers just sent you a demand for money or a lawsuit saying that you did something wrong and that they were financially harmed because of that. Now, don’t panic, this is why you have errors and omissions insurance.

The first thing you should do is locate a copy of your E&O policy. There is a section in your policy regarding what to do in case of a claim. You will need to notify your carrier in writing and give them some details about the claim.

Based on the allegations and amount of the claim, it is possible that you carrier will decide to non-renew your policy. This is a common practice when a carrier thinks that you are no longer a good risk.

In order to find coverage from another carrier, you will need to complete a new insurance application and disclose your claim history. You will also need you loss runs for the past five years. Loss runs are documents from insurance companies that show each claim you had in each policy year.

Some surplus lines carriers specialize in insuring agents or agencies with claims. You can however expect to see a significant increase in your E&O premium if a carrier agrees to quote you. You will usually be stuck with a higher priced policy until you remain claims-free for a period of five years.

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So you have an E&O insurance policy and your client or broker asks to be added as an additional insured. Sounds reasonable, because they should also be covered if you mess up, right?

Well not so fast. Your E&O insurance policy is designed to cover you for your wrongful acts. There’s no telling that your E&O carrier would necessarily cover someone else just because they’re an additional insured.

There’s also the pesky “insured vs. insured” exclusion which says that no coverage is provided for a claim made by an insured against another insured. Well, what if your client or broker sues you for malpractice and they’re on your policy as an additional insured? Shouldn’t you be covered for that?

So therefore, be careful before you add anyone on your policy as an additional insured. It may result on a loss of coverage for you.

Let’s face it, being an insurance agent can be a lot of work. You’re dealing with a lot of customers, some of them demanding, a lot of them confused about insurance, and you have to keep them all happy. This means that renewals and new applications have to be processed on time, questions have to be answered, and changes in coverage have to me made.

This leaves a lot of room for an agent to make an error or omission. Even if you don’t end up making an error or omission, you can have an unhappy customer (usually one of the confused ones) file a claim against you.

It is estimated that one out of seven insurance agents will have an E&O claim filed against them during their career. Needless to say that defending such claim, in addition to possibly having to pay damages, can be time consuming and expensive.

This is why E&O insurance is purchased by most insurance agents. E&O insurance provides insurance agents with peace of mind that if a claim is filed against them, their insurance company will take care of it. This means that insurance agents can instead focus on running and growing their business.

The retroactive date, also called the prior acts date, is an important part of the E&O insurance policy which is sometimes overlooked. Professional liability insurance policies (including E&O insurance) are mostly sold on a claims made form, rather than an occurrence form which is used for all other lines of business. This means that the E&O insurance policy provides coverage for claims reported during the policy period as long as the negligent act, error, or omissions which gave rise to the claim took place after the retroactive date. The retroactive date therefore effectively determines the beginning of the E&O insurance coverage.

The retroactive date is usually set as the effective date of the first E&O insurance policy you ever purchased, and the retroactive date should be kept the same as long as you continue to purchase E&O insurance. If you fail to renew your E&O policy on time, your retroactive date will probably be reset and you will lose coverage.

This means that, in order to keep your coverage intact, you should always renew your E&O policy on time and verify that your insurance binder contains the right retroactive date.

We’re a retail insurance agency and provide E&O insurance to all types of insurance agents, brokers, agencies, and brokerages. In this blog, we discuss various aspects of what you should know about E&O insurance for insurance agents and brokers.